Can Greece Break Its Deadlock With Lenders? A Q&A With Greece’s Papadimitriou

By Nektaria Stamouli

Feb 9, 2017 8:46 am ET

Greece's Economy Minister Dimitri Papadimitriou, shown here during an appearance in Athens last month, said a deal with international creditors should help Greece to borrow on bond markets again by the end of 2017.

Greece’s Economy Minister Dimitri Papadimitriou believes Greece will strike a deal with its international creditors by the next meeting of Eurozone finance ministers on February 20. This, he says, could pave the way for the country’s inclusion in the European Central Bank’s bond-buying program and help Greece to borrow on bond markets again by the end of 2017. Here is an abridged transcript of his conversation with The Wall Street Journal’s Nektaria Stamouli in Athens on Tuesday.

WSJ: Not much has changed since the IMF’s board meeting [about Greece on Monday]. How do you move the ball forward?

DP: The IMF meeting shows that debt restructuring needs to be addressed, and not only in the form of the [eurozone bailout fund] ESM’s short-term measures, but also through medium and long-term measures. This is a very important issue for the government and obviously for the IMF. It is important for the rest of the international lenders, but they have different opinions about how to handle it.

Most important thing is that there is a disagreement among us and the European Union leaders about the projections of the IMF on how the Greek economy will perform. We are sure that we have turned the corner. The results point in that direction since the third quarter last year, and therefore we will be on the road to recovery and significant growth, allowing us to deal with the obligations that we have in servicing the loans, once we have a clear idea what the restructuring will be. Both in 2015 and 2016, the primary surpluses have been much better than what the program required and therefore we are confident that the goals that have been set for 2017-18 will be met.

WSJ: But all creditors have lined up behind the IMF’s demand for upfront legislation [of new fiscal measures] and say that Greece should deliver first. Everybody is standing firm in their position and somebody has to make the first step.

DP: Well it is not clear that everybody has lined up behind the IMF. The IMF is suggesting specific measures be voted now. Everybody has lined up in the sense that Greece has to provide some kind of guarantee that in fact if things do not go well, something will be done. The Greek government has indicated that the mechanism that we have for automatic cuts will be put in place if the results do not meet the targets.

That seems to satisfy everyone except the IMF, which insists on specific targeted measures to be put in place now, which is very unreasonable and cannot be adopted.

WSJ: There are indications that the government is working on a compromise solution that could involve lowering the threshold for paying personal income tax. How far can the government go?

DP: Both the prime minister [Alexis Tsipras] and the finance minister [Euclid Tsakalotos] have indicated that Greece is not interested in negotiating any of these items, whether it would be the threshold or tax-exempt level, or to create any other mechanism that includes specific spending cuts. So the negotiations have to move in a different direction, towards accepting the mechanism we have, which provides the guarantee for international lenders. At the end I think that this will be the agreement because there isn’t any other reasonable offer that the Greek government can make.

WSJ: What guarantees does the Greek government want to in return for this compromise? What is the comprehensive agreement that the government wants?

DP: The Greek government wishes to have an agreement on debt restructuring. This takes many forms. It can be a complete reduction of the real value or of the present value. That includes fixed interest rates at a very, very low rate, perhaps at the basic lending rate of the EU, which is now at less than 1%, which will ensure the long-term stability of debt servicing without the vagaries of changing interest rates. So there will be a guarantee from the international lenders to provide this measure in return for Greece agree to this [fiscal] guarantee—the “cutter” or whatever you call it.

WSJ: So should Greece make the first step back for the negotiations to be unlocked?

DP: Negotiation is like dancing the tango: you need both and who would make the first move is not clear. The finance minister is working through the various channels to restart the negotiations. There is willingness, as far as we can see, from our international partners to have the mission return to Greece and iron out the details of the negotiations. It is my expectations that on February 20 at the next Eurogroup meeting, the agreement will be reached and the country will be eligible for QE, which is very important for lowering interest rates, not only for us in terms of the short-term treasury bills that we issue, but also for banks and companies.

WSJ: There have been press reports that many members of the government are not on the same page.

DP: There are many discussions that go on. This is not unique to Greece. In [the governing coalition in] Germany they don’t agree with each other either: the SPD says Germany is very hard on Greece. In Greece it’s the same thing, there are echoes, voices from different corridors that disagree on how one should proceed. I don’t pay very much attention to this. The negotiation is a difficult process. The Greek government has placed its cards on the table that there are things that are not negotiable.

WSJ: Germany wants 3.5% primary surpluses to be maintained for 10 years, others suggest five. For how long do you suggest Greece should run high surpluses?

DP: My suggestion is that we shouldn’t accept it for any years. I’m all in favor of the IMF’s position of 1.5%. I think these surpluses are unnecessary. Once the restructuring of the debt is done, we will see exactly what’s needed as a primary surplus. What the IMF says, in the words of its managing director Christine Lagarde, is that Greece cannot take any more austerity, therefore it must have the 1.5% primary surplus.

WSJ: In reality is the IMF an ally on this front or is it sitting on a fence waiting for Greece and Germany to have this argument?

DP: The IMF’s experience is that it’s not a friend of anybody. It has its own policy and it unfortunately applies it in every case irrespective of what the particular circumstances are in each country. When they represent themselves as doctors, they make no distinction between a disease in the stomach or a heart failure. Therefore it’s not clear that one can say the IMF is a friend of Greece or of Europe. I think it maintains its policy, it’s consistent. However wrong it is, it’s consistent.

WSJ: Will the Greek economy be able to accelerate this year and reach the target of 2.7% growth?

DP: The 2.7% growth target is certainly an ambitious one, but it can be met. The early indications show that investors, both from Europe as well as businesses here and from overseas, have expressed dramatic interest in coming to Greece. One of the major resources that Greece has is the labor force, which is extremely well-trained and very gifted.

WSJ: The cabinet reshuffle [in late 2016] was mainly done to make the government more investment friendly. Are the results more investment friendly?

DP: You are actually referring to this ministry and my appointment and therefore I naturally have to say that yes I think there is a change of the climate. The government is trying to create a friendlier investment climate and my meetings with many of the investors indicate that people are very much interested.

What is important is for the second review [of the bailout program] to be closed as quickly as possible and for Greek bonds to become eligible for QE. That would symbolically give investors the opportunity to see that there is a normalization in the country that perhaps has not been there for the past seven years. I don’t believe that there is any instability. Most people tell me do not under any circumstances go to elections, because irrespective of what differences might exist between the government and the opposition, stability is very important.

WSJ: So you don’t think elections are an option for Syriza at the moment?

DP: Absolutely not.

WSJ: When could Greece access the markets again?

DP: Our view is that, if we enter QE, we could tap the markets towards the end of the year.